NUA Calculator: Net Unrealized Appreciation vs. IRA Rollover

Not tax or legal advice. NUA elections are irrevocable and require precise execution. Work with a qualified tax advisor before proceeding.

If you have highly appreciated employer stock inside a 401(k) or other qualified retirement plan, the net unrealized appreciation (NUA) strategy lets you pay long-term capital gains rates on all appreciation instead of ordinary income rates — potentially saving six figures or more for a UHNW executive. This calculator quantifies the exact tax comparison for your situation.

How the NUA strategy works

When you have employer stock inside a qualified retirement plan — a 401(k), profit-sharing plan, or ESOP — and that stock has appreciated significantly above its original cost basis, IRC §402(e)(4) gives you a powerful option: take the stock out of the plan in-kind rather than selling it inside the plan or rolling it to an IRA.¹

The tax result is stark:

• Cost basis — the employer's (and your) purchase price for the shares as recorded by the plan — is treated as a normal retirement distribution. You pay ordinary income tax on it in the year of distribution (and the 10% early withdrawal penalty if you're under 59½).
• Net unrealized appreciation — the difference between the fair market value at distribution and the plan cost basis — is excluded from gross income at the time of distribution and taxed as long-term capital gain when you eventually sell the shares, regardless of how long you held the stock inside the plan.¹

For a UHNW executive in the 37% federal bracket, the rate differential is significant: ordinary income at 37% + 3.8% Medicare surtax on wages vs. 20% LTCG + 3.8% NIIT = 23.8% combined when the shares are sold. On a $10M NUA position, that 13.2% differential represents $1.32M in federal tax savings before considering state tax.

Eligibility requirements

NUA treatment under §402(e)(4) requires all four of the following:

1. Qualifying employer securities. The stock must be stock of the employer corporation (or parent/subsidiary) that maintains the plan. The plan must hold actual employer shares, not phantom stock or units in a company fund.
2. Qualifying triggering event. The distribution must be on account of one of four events: (1) separation from service, (2) reaching age 59½, (3) death, or (4) total and permanent disability. For IRAs, only death or disability qualify — not separation or age.¹
3. Lump-sum distribution in the same tax year. You must distribute the entire balance from all plans of the same type (all 401(k) plans, if that's the plan type) maintained by the same employer in a single tax year. Partial distributions don't qualify. Rolling most assets to an IRA but distributing only the employer stock as NUA typically works, but only if all like-plan balances are distributed in that calendar year.³
4. In-kind distribution of the shares. The employer stock must be distributed as shares to a taxable brokerage account — you can't sell it inside the plan and distribute cash. Other plan assets (bonds, mutual funds, diversified equity) can be rolled to an IRA in the same transaction.

When NUA wins vs. rollover

The NUA strategy isn't universally optimal. It trades paying some ordinary income tax now (on the cost basis) for paying LTCG on the NUA later. Three factors determine the outcome:

1. The ratio of NUA to cost basis

The higher the appreciation relative to basis, the more powerful the NUA election. A position with 90% NUA and 10% cost basis is far more attractive than one that's only 40% NUA. Use the calculator above — the "NUA ratio" drives most of the math.

2. Your effective tax rates (ordinary vs. LTCG)

The NUA strategy saves ordinary income rate minus combined LTCG rate on the appreciated portion. For federal-only taxpayers: 37% − 23.8% = 13.2% savings on the NUA. If your state taxes ordinary income and LTCG at the same rate (as California does at 13.3%), the state adds the same rate to both columns — so the rate differential stays the same. But if you live in a no-income-tax state, your ordinary rate is effectively lower and so is the differential.

3. State of residence at distribution vs. at sale

This is the UHNW planning opportunity. If you plan a state domicile change — say, from California (13.3%) to Florida (0%) — timing the NUA distribution and the sale of shares around your residency change can be transformative:

• If you're still a CA resident at distribution: CA taxes ordinary income on the cost basis at 13.3%. Take the distribution in your last year of CA residency before or after. Note: the cost basis income is sourced to the state of residence at the time of distribution — not at the time the stock was earned.
• If you've established FL residency before selling the NUA shares: you pay 0% state tax on the NUA appreciation. That eliminates the 13.3% CA rate entirely on the NUA portion.
• For a $10M NUA position: selling as a FL resident vs. CA resident = $1.33M in state tax savings on the NUA alone.

See our State Tax Domicile Change guide for the FTB residency audit standard and 546-day safe harbor mechanics.

4. The 10% early withdrawal penalty

If you're under 59½ at the triggering event, the 10% penalty applies to the cost basis distribution — but not to the NUA itself (because the NUA is excluded from gross income at distribution, the penalty base doesn't include it).¹ For large NUA positions with a small cost basis, the penalty is manageable. For a $500K basis with a $5M NUA, the penalty is $50K — easily overcome by the rate differential on $5M of NUA.

UHNW-specific considerations

Concentrated stock and the NUA election

Taking an NUA distribution means you now hold a large, concentrated employer stock position in a taxable brokerage account with a very low cost basis. You've deferred the tax, but you haven't eliminated the concentration risk. Consider:

• Prepaid variable forward (PVF): monetize some of the position without triggering gain immediately, while capping the downside. See our Concentrated Stock guide.
• Exchange fund: contribute NUA shares to an exchange fund (§721 partnership, 7-year lockup) to diversify tax-free. Good fit if concentration risk is your primary concern.
• Charitable giving: donate NUA shares directly to a donor-advised fund. You avoid the LTCG + NIIT entirely, claim a deduction for FMV, and the DAF sells tax-free. Best for philanthropically-inclined families.
• GRAT funding: put NUA shares into a GRAT immediately after distribution — they arrive with your low cost basis but the GRAT values them at FMV. If the stock continues to appreciate, that appreciation passes to heirs estate-tax-free. See our GRAT calculator.

RMD advantage of NUA shares

Shares held in a taxable brokerage account (post-NUA) are not subject to required minimum distributions. By contrast, IRA assets are subject to RMDs beginning at age 73 (or 75 for those born in 1960 or later, per SECURE 2.0 §107).⁴ For UHNW clients who don't need the income and are concerned about RMD-forced ordinary income recognition, the NUA election reduces the IRA balance (and thus future RMD exposure) by the value of the employer stock distributed. This makes the NUA strategy a de facto RMD-reduction tool as well.

Estate planning with NUA shares

NUA shares in a taxable brokerage account receive a full step-up in basis at death under IRC §1014 — just like any other brokerage asset. If you hold the shares until death, your heirs inherit with a stepped-up basis equal to fair market value at the date of death, eliminating the deferred capital gain entirely. This is the "buy-borrow-die" strategy applied to NUA: distribute the shares, borrow against them if you need liquidity (securities-based lending), never sell, step-up at death. For large NUA positions, this can be transformative for multigenerational planning.

IRMAA and NUA distribution timing

The cost basis distribution creates ordinary income in the year of distribution and increases your MAGI. If you're already on Medicare or approaching it, a large NUA distribution in a single year can spike your IRMAA surcharges for 2 years following the high-income year (the 2-year lookback). The 2026 IRMAA top tier adds $487.20/month per person to Medicare Part B, plus surcharges on Part D.⁵ Model your MAGI across the distribution year and the two following years before choosing timing.

Common NUA mistakes

• Partial distribution of plan assets. The most common mistake: distributing only the employer stock while leaving the rest of the plan in place (instead of rolling it to IRA). If you don't distribute all plan assets of the same type in the same calendar year, you fail the lump-sum distribution requirement and lose NUA treatment entirely.
• Not tracking lot-level cost basis. Plan administrators often report the plan's cost basis as an aggregate. If you've been accumulating employer stock over 20 years at different prices, the per-lot basis matters for optimizing which lots to elect NUA on. Get the full lot-level breakdown before proceeding.
• Selling inside the plan before distribution. Once you sell the employer stock inside the plan and roll the cash to an IRA, NUA treatment is gone. The distribution of employer stock must be in-kind.
• Wrong triggering event for an IRA. NUA is only available from qualified employer plans (401(k), 403(b), ESOP) — not from IRAs. And for IRAs, only death or disability qualify as triggering events; separation from service doesn't count. Many executives consolidate plan assets into a rollover IRA before executing NUA — and then discover the stock they moved is no longer eligible.
• Ignoring state-level sourcing rules. Some states source the cost basis ordinary income to the state where the services were rendered (not the state of residence at distribution). If you worked in a high-tax state but live in a no-tax state at distribution, verify with a state tax specialist — don't assume zero state tax on the cost basis.